Halftime: Is Market Whistling Dixie?

Lately it seems that only one catalyst matters to this market, the dollar.

On Monday, as the dollar bounced off the session lows stocks retreated from session higher.

It’s hard to ignore the fact that for the past three months the S&P and the greenback have traded in an almost perfect inverse relationship.

Will the outcome of the week-end G20 meeting -- in which world leaders agreed to shun competitive currency devaluations -- stem the dollar’s decline?

Instant Insights with the Fast Money traders

Don’t forget there’s another G20 meeting next month, reminds Zach Karabell. Until then I expect the dollar will trade on perceptions of increased liquidity generated by QE2. In other words the weaker dollar trend reminds in tact. The same trades that were working last week should continue to work this week.

And some of those trades that were working last week we’re pegged to commodities, reminds host Melissa Lee.

I’m concerned about the run up in commodities, says Brian Kelly. The current market reminds me of the market in 2008 where we had a massive run up in commodities into a slower economy that just couldn’t handle it. And we’re already hearing from companies such as Hershey’s and Kellogg's that say they can’t pass along those price increases. They just don’t have the pricing power. That’s a concern.

As well as the dollar, I think the market is also trading on the outcome of the election, speculates Steve Grasso and from here -- anyway you look at it -- I think the only way to go is down. If the GOP takes over the House we rally short-term but then it’s over. And if they don’t take over the House we go lower.

The traders are closely watching the action in coffee related stocks with Smucker , Caribou and Starbucks all hitting new 52 week highs as coffee prices continue to surge on concerns of supply shortages.

What’s the trade?

Options action in Starbucks has been strong and the stock continues to trade well, says Pete Najarian. Starbucks is clicking in a difficult economy. I’d put it on the radar.

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OIL TURNS NEGATIVE

The traders were also watching the action in oil , which turned negative around lunchtime despite relative dollar weakness.

What’s the trade?

I’d play the space with Halliburton or Schlumberger , says Steve Grasso.

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TOPPING THE TAPE: CITI

Turning attention to financials, Citi was a stand out stock among a mostly lower financial sector after Goldman Sachs upgraded it to 'Conviction Buy', citing valuation and its limited put back risk.

”We believe C’s exposure to private label put-backs should be significantly lower than peers,” Goldman said. “...C’s consumer mortgage business issued $25 billion and its Securities and Banking business issued only $70 billion, a very small amount relative to other market leaders. All said, we believe both of these issues will subside over time and could represent meaningful catalysts to share price.”

What’s the trade?

I don’t think Goldman will have a huge impact on the stock, says Steve Grasso. However if you have a long-term time horizon, I like it.

--------IS THERE A BUBBLE?

Looking at a trade Fast Money has been all over, chatter on the Street suggests that a bubble could be forming in rare earth stocks.

As you might remember last week Mark Smith, the CEO of MolyCorp told us ”I don’t think short-term prices in rare earth (minerals) are prices people ought to be counting on."

He went on to say, ”they are really spiked right now and there may be a bubble occurring because of all of the news and the frenzy.”

What’s the trade?

Bubbles are formed when supply is plentiful yet prices keep going up, says Brian Kellly. This is not a case where supply is plentiful so I don’t think it’s a bubble. If you’re looking to trade it, I’m bullish Molycorp right here. REE looks a little ahead of itself.

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